One Person Company
In the year 2013, the Indian Government revolutionized the corporate sector in India. New regulations were introduced using The Company Act of 2013. This Act introduced the concept of one person company. Earlier, to start a company the entrepreneurs had to go through and follow tough regulations, it was more time-consuming. This used to consume a lot of time. Entrepreneurs used to less time making products and doing things which mattered and lots of time in complying.
To make matters worse the entrepreneurs need to have more than one directors and hold meetings e.t.c. These all made starting a company very difficult. To promote entrepreneurship and give advantage to startups, the Indian Government introduced the one person company. Some countries have already introduced this act such as China, the United Kingdom e.t.c. Let’s look deeper into the one person company.
What is One Person Company?
One person company is defined in Sub-Section 2 of section(2) of The Companies Act of 2013, which reads as follow:-
One Person Company means a company which has only one member
It shall also be important to note that Section 3 classifies (One Person Company)OPC as Private Company for all the legal purpose with only one member. All the provisions related to the private company apply to a (One Person Company)OPC, unless otherwise expressly excluded.
What are the advantages of One Person Company?
1. Limited Liability
Just like Public Limited Company or Private Limited Company, the most important feature of One Person Company is that the risk in starting the business is limited to the amount invested in the business. This is helpful since you know you can’t lose more than you have invested in the business. It gives entrepreneurs more flexibility in doing their work and taking risks.
2. Separate Legal Entity
It is clearly stated that One Person Company can function as a separate legal entity. It has its recognition. It has rights over its assets. No member has the insurable right in the assets of the company.
3. Transferability of Shares
Share of One Person Company only belongs to one person, meaning there can’t be more than one shareholder. If the share is transferred then the 100% shares are transferred. No partial transfer of shares is allowed in One Person Company. This removes the risk of losing control over the company.
4. Tax Relaxations
As One Person Company is a separate legal entity, it is allowed to hold contracts with directors and other members. Meaning the amount paid to the director as remuneration can be deducted from the profit, also it can pay rent which will further reduce the profit and leading to less tax. The Indian Governments is running various schemes to promote OPC, a scheme such as Startup India help new companies.
5. Social Recognition
This form of company is the most common form of company in the world. It also gives the full control over the company which let’s entrepreneur handle the business in their way and style.
How to the register of One Person Company
Step 1: Apply for Digital Signature Certificate(DSC)
The very first step in terms of registering a company is applying for DSC. It is used to get the sign the documents. The DSC should be applied by the proposed director of the company. Documents Required for DSC are:-
- Adhaar Card
- Permanent Address Number(PAN) Card
- Address Proof
- Email ID
- Phone Number
Note: You can apply for DSC from these Certifying Authorities.
Step 2: Apply for Director Identification Number (DIN)
DIN is issued by The Central Government of India. It unique 8-digit code issued to a person, which has lifetime validity. It is issued to a person who is already a director or intending to be one. One person requires only one DIN for a lifetime. New director for One Person Company requires only to fill SPICe Form to obtain DIN.
Step 3: Name Approval Application
Now, it’s time to use your creative side of your brain. Get a notebook and a pen, write a bunch of names. After writing them to choose two of your most favourite names. Name of the company will be informed of “ABC (OPC) Private Limited”.
Now, you have two ways to get your company name. Either by making an application in Form SPICe 32 or by using RUN web service of MCA by giving only one preferred name with the significance of keeping that name. However, from 28-March-2018 The India Government has allowed for two proposed names and one re-submission during RUN service.
Mandatory Attachment for Form SPICe :-
- Proof of Residential Address of Director and Nominee
- Proof of Office Address of Company
- PAN of Director and Nominee
- Utility bill
- Consent of Nominee (INC-3)
Step 4: Filling for MoA and AoA
MoA : It is a memorandum of association. It is consist of fundamental conditions on which the company operates on.
Mandatory for form SPICe MoA :-
- Pre-fill SRN of INC-1 and system will give the approved name of the company
- Select a Table between Table A and Table E.
- The object of the company should be specified.
- Fill the amount of authorized capital
- Fill the details of the subscriber
- Fill the details of the witness of subscriber
AoA : It is articles of association. This defines the duty of the director and the kind of business undertaken by the company. It also contains information about rules and regulation governing the internal management of the company. It is a binding contract between the company and its members.
Mandatory for form SPICe AoA :-
- Pre-fill the SRN of RUN and system will generate an approved name.
- Select between the table between F to J.
- You can change the clause of the Table.
- Fill the details of the subscriber.
- Fill the details of the witness of the subscriber.
Step 5: Uploading & Verification
Upload all the forms to Ministry of Corporate Affairs. After Uploading the document, pay the fees for registration. Wait some time for the verification of your documents by RoC. Issue of Certificate of Incorporation is sent to the director of the company on the email address. Once Incorporation Certificate is issued the company can start its operations.
Formalities after Incorporation of One Person Company
According to The Companies Act of 2013, companies after incorporation have to follow certain provisions. Such as:-
- To Open Current Bank Account
- To give subscribers money
- And Many More…
Regulation for One Person Company
- There is no need to hold a general meeting.
- There is no need to hold four board meeting per annum.
- An individual can’t operate or be a nominee of two or more One Person Companies.
- No minor shall become nominee or beneficiary of One Person Company.
- One Person Company can not carry out Non-Banking Financial Investments.
- One Person Company can not be converted to the company under Section-8.
Difference between One Person Company and Sole Proprietorship
|Field||Sole Proprietorship||One Person Company|
|Liability||“Unlimited Liability” means in case business occurs loss, not only company but also owner’s assets are sold to settle the debt||The liability is only limited to the amount invested in the company. Only company assets are seized.|
|Taxation||Income of the company is treated as the income of the person. The person is taxed on whole income, which is income from company and income from other sources||OPC is taxed according to the regulation of Income Tax Act for Private Limited Company|
|Conversion||It can remain as it is, no matter what the income is||One Person Company has to be converted into private or public limited as soon as it crosses annual turnover of two crores for two consecutive year|
|Compliance||Only required to get its account audited only once it crosses certain threshold||Like every private limited, accounts needs to be audited annually and has to file annual returns|
Difference between One Person Company and Limited Liability Company
|Field||Limited Liability||One Person Company|
|Liability||Limited to the amount contributed||Limited to the amount invested|
|Taxation||30% of the profits and the applicable surcharge||Annual Tax and Audit are required|
|Conversion||Cannot be converted into a company||Can be converted into a public/private|
|Transferibility||To anyone||Only to the nominee|
Difference between One Person Company and Public/Private Company
|Field||Private Company||One Person Company|
|Liability||Limited to shareholder||Limited to investor|
|Number of directors||2 - 15||1-15|
|Members to establish company||2 - 200||Only 1|
|Foriegn Direct Investment (FDI)||Allowed||Not Allowed|
Famous examples of One Person Company
Since, OPC was launched recently there are not any major player and most of them are converted to public or private limited after reaching threshold. But here are few example of One Person Company :-
- Big Oven
- Amazon, Yep, amazon was one person company